Chino General Merchants Xtreem Ltd v Chen Zhebit & Avic Intl Beijing (E.A) Co. Ltd [2022] KEHC 1759 (KLR)

REPUBLIC OF KENYA

IN THE HIGH COURT OF KENYA AT MACHAKOS

(Coram: Odunga, J)

HIGH COURT CIVIL CASE NO.  7 OF 2020

CHINO GENERAL MERCHANTS XTREEM LTD............PLAINTIFF

-AND-

CHEN ZHEBIT ALIAS JACK.....................................1ST DEFENDANT

AVIC INTL BEIJING (E.A) CO. LTD........................2ND DEFENDANT

JUDGEMENT

1. By a plaint dated 20th March, 2020, the Plaintiff herein sued the Defendants herein seeking the following reliefs:

a)Special damages in the sum of Kshs 49,162,060/- being outstanding debt owed to the Plaintiff.

b)General Damages.

c)A permanent injunction against the Defendants, their agents, servants and/or any persons acting on behalf of the Defendants/Respondents preventing them from communicating with the Plaintiff/Applicant’s clients, repossessing machinery/merchandise sold to them by the Plaintiff, harassing, threatening, intimidating, directly selling them machinery/merchandise or dealing with the Plaintiff/Applicant’s clients in any manner whatsoever.

d)A declaration that the Plaintiff is entitled to aggravated damages for loss of business.

e)Costs of this suit.

f)Interest on (a), (b) (c) & (d) above.

g)Any other or further relief as this honorable court may deem fit and just to grant in the circumstances of this suit.

2. According to the Plaintiff, it deals with selling merchandise machinery, motor trucks, wheel loaders, graders and rollers products for Shantui, JMC, Shacman & JAC. Under a Distributorship Agreement between it and Avic Intl Beijing (EA) Company Limited(the 2nd Defendant herein) dated 1st October, 2018, the Plaintiff was appointed by the 2nd Defendant as the latter’s Sub dealer in respect of the said machineries of which the 2nd Defendant was the main dealer and supplier.

3. In breach of terms of the said Agreement, the 1st Defendant discouraged the Plaintiff’s clients from purchasing the merchandise/machinery directly from the Plaintiff thus making it to suffer a legitimate expectation of loss of business. The 2nd Defendants also started directing the Plaintiff’s clients to directly buy products from Karmec Company Limited instead of buying the same from the Plaintiff Company.

4. The 1st Defendant is the 2nd Defendant’s Manager and was threatening and/or harassing the Plaintiff’s Clients.

5. It was further pleaded that the 1st Defendant unlawfully served the Plaintiff with a price review notice while still in default with their unpaid up Dealership fees and had not supplied the Plaintiff’s clients with the purchased merchandise in total breach of the Distributorship contract. This was despite the fact that the said Plaintiff’s Clients had fully paid for the purchase of machinery/merchandise and as a result the Plaintiff was unable to deliver the said goods to its clients.

6. As a result of the said acts of intimidation, harassments and threats by the 1st Defendant/Respondent, directed at the Plaintiff’s clients, it was the Plaintiff’s contention that it had been exposed to the risk losing its clients and business as the said actions threaten to push it out of business as a result of which it stands to suffer an irreparable loss.

7. According to the Plaintiff it stood to suffer loss for its unpaid up dealership fees amounting into Kshs. 49,162,060/=.

8. It was sought that upon the 2nd Defendant/Respondent being paid by the County Government of Baringo,this court be pleased to issue orders compelling the 2nd Defendant/Respondent to pay the Plaintiff the said Kshs 49,162,060/=.

Defendants’ Case

9. In their joint defence, the Defendants denied the allegations made in the plaint and averred that the alleged dealership and distribution agreement did not grant exclusively rights of sale and distribution to the plaintiff/applicants to the exclusion of the 2nd defendant/respondent from proceeding to seek direct business and distributions of its products without the involvement of the plaintiffs/applicants.

10. According to the Defendants, as a  result of the Plaintiff’s  breach of the terms of the dealership agreement, the defendants took some of  mitigating measures as stipulated under clause 5. 5(a),(b) & (c) of dealership agreement and plaintiff/applicant and proceeded to sign a further settlement agreement/mutual termination agreement dated 23rd day January 2020 and executed by the plaintiffs on 30th day of January 2020 in which the plaintiffs admitted that they owe the 2nd defendant a sum of Kenya Shillings Fourteen Million Two Hundred and Sixty Three Thousand, Three Hundred and Thirty Five Only (Kshs 14,263,335. 00) which amounts were to be cleared in five different installments starting from 31st day of March 2020 and the last to be made on 30th day of April 2020.

11. The Defendants insisted that it is expressly provided for in the dealership agreement in clause 5. 4 (a) that the 2nd defendant had a right to repossess on account of non-payments and since the dealer herein plaintiff had acknowledged and signed a settlement agreement for unremitted amounts of Kshs. 14,263,335/= the 2nd defendant is entitled to proceed under terms of Clause 5. 4 (a) to repossess and even resale to recover its unpaid balance as a result of breach of contract.

12. The Defendants therefore prayed that the Plaintiff’s case be dismissed and counterclaimed for the following orders:

1)A declaration that the plaintiff has fundamentally breached the terms of the dealership by failing to remit deposits made through plaintiff’s company on behalf of the defendants within the stipulated time frame.

2)Special damages in the sum of Kshs. 14,263,335. 00 (Kenya Shillings fourteen million two hundred and sixty three thousand, three hundred and thirty five only) being the outstanding debt owed to the defendants (now plaintiffs).

3)A declaration that the defendants are entitled to aggravated damages for loss of business.

4)Costs of the suit.

13. Together with the suit was filed an application for injunction.

14. On 27th July, 2021, when the matter came before this court, Mr Muoka appeared for the Plaintiff while Mr Kitindio Musembi represented the Defendants. The Court then granted leave to the plaintiff to file further statements within 7 days with corresponding leave being given to the Defendants and the matter was fixed for hearing on 9th November, 2021. On that day only the Defendant was represented and Mr Kitindio, Learned Counsel for the Plaintiff sought for the dismissal of the plaintiff’s case and for leave to proceed with the Counterclaim.

15. Order 12 rule 3 of the Civil Procedure Rules provides that:

(1) If on the day fixed for hearing, after the suit has been called on for hearing outside the court, only the defendant attends and he admits no part of the claim, the suit shall be dismissed except for good cause to be recorded by the court.

(2) If the defendant admits any part of the claim, the court shall give judgment against the defendant upon such admission and shall dismiss the suit so far as it relates to the remainder except for good cause to be recorded by the court.

(3) If the defendant has counterclaimed, he may prove his counterclaim so far as the burden of proof lies on him.

16. Pursuant to the foregoing provisions, the Plaintiff’s case was dismissed and the matter proceeded to proof of the counterclaim.

17. PW1, Morris Mutinda Shem, the 2nd Defendant’s senior accountant, in examination in chief, relied on his witness statement in which he stated that the dealership and distribution agreement did not grant exclusively rights of sale and distribution to the plaintiff to the exclusion of the 2nd defendant from proceeding to seek direct business and distributions of its products without the involvement of the plaintiffs hence the transaction leading the present suit are purely transactions which didn’t involve the participation of the plaintiff.

18. It was stated that the plaintiff had already breached the terms of the dealership agreement as a result of which the defendants took some  mitigating measures as stipulated under clause 5. 5(a),(b) & (c) of the said dealership agreement which measures plaintiff acknowledged and signed a further settlement agreement/mutual termination agreement dated 23rd day January 2020 on 30th day of January 2020 admitting that they owe they owe the 2nd defendant a sum of Kenya shillings fourteen Millions two hundred and sixty three thousand, three hundred and thirty five only (Kshs 14,263,335. 00)  and which amounts were to be cleared in five different instalments starting from 31st day of March 2020, the last instalment slated to be made on 30th day of April 2020 and the plaintiff has defaulted.

19. According to the witness, the alleged loss of business for dealership fees totalling to Kshs. 49, 162, 060/= were pure fabrication and a gimmick to divert the attention of the plaintiff of honouring their contractual obligation. According to the witness:

(a) The claim in respect of County government of Baringo for supplier of 20 different units whereby the plaintiff is seeking a total of Kshs. 34,783,000/- is purely fabricated tabulation since the said business is a direct business account between the county government of Baringo and the 2nd defendant hence plaintiff is not entitled to any payment of dealership fees. The contracts for the supplies of the units to all the government institutions, Baringo County Government being part of the government institution were directly signed between the ministry of transport, infrastructure, public works, housing and urban development,(State department for public works –supplies branch) and the 2nd defendant under the strength of the above standard agreements directly engaged the County Government of Baringo who issued an LPO directly to the 2nd defendant and not through plaintiff hence the plaintiff are not entitled to any payment thereof.

(b) The claim in respect of County government of Kwale for supplier of 1 unit whereby the plaintiff is seeking a total of Kshs. 950,000/- is also fabricated since the said business is a direct business account between the county government of Kwale and the 2nd defendant, fact of which the plaintiff has acknowledged in the settlement agreement dated 29. 1.2020 and signed by the parties herein whereby the plaintiff s agreed to exclude the Kwale county transaction since it was a direct business account.

(c)THATthe sentiments stated in the email dated 8th day of January 2020 and relied upon by the plaintiff as admission on the part of the 2nd defendant was purely a request on strength the two parties who have been engaged in business and cannot to be treated to imply any dealership contract between the county government of Kwale and the plaintiff on behalf of the 2nd defendant.

(d)THAT  the transaction in respect of DAMAO SOLUTIONS LIMITED was cancelled by the customer who had entered into dealership agreement with plaintiff  through sale agreement  dated 29th July 2019due to non-performance by the plaintiff since plaintiff  had misappropriated customers deposit of Kshs, 2,750,000/- and failed to submit the cash to the 2nd defendant immediately as per the dealership agreement hence the alleged claim of Kshs 1,250,000/- cannot be substantiated upon the cancellation and decision by the customer to deal directly with the supplier herein the 2nd defendant.

(e)THATthe transaction in respect of S.S MEHTA AND SONS LIMITED was a direct business and not dealership business and clearly there is no agreement between the plaintiff and the said customer hence the alleged claim of Kshs 1,300,000/- cannot be substantiated since the customer herein has been dealing directly with the supplier herein the 2nd defendant and all the payments were made directly to the 2nd defendant.

(f)THATthetransaction in respect of ABU UBAYDA HIGH SCHOOL, JETI GENERAL CONTRACTOR’S LTD & SHREE SAHAJAND VIJAY ENTERPRISES allegedly for a claim of loss of business to the tune of  Kshs 1,260,000/- , Kshs 1,000,000/=& Kshs 1,250,000 respectively are strange to the 2nd defendant since the attached bank letter of offer are directly between the plaintiff and cooperative bank and the same were not in any way communicated to the 2nd defendant hence the cumulative claim of Kshs 3,510,000/-cannot be substantiated and the same amounts to plaintiffs expectation to reap  where he has sown.

20. While denying the allegations of intimidations of customers as insinuated by the plaintiff and, it was contended that it was the plaintiff who was unreasonably withholding payments made by the customers for the 2nd defendant through the plaintiffs’ accounts contrary to the arrangements stipulated in the dealership agreement leading to customer’s frustrations and dissatisfaction with plaintiff’s services.

21. According to the witness, under the 2nd defendants regulations unless the full purchase price is paid all the logbooks are held as security for the balance owed to the 2nd defendant/respondent regardless of how the business was acquired whether direct or through dealership agreement hence unless the full purchase price is paid to the 2nd defendant/respondent accounts the logbook remains under the custody of the 2nd defendant.

22. It was his testimony that the dealership agreement which is still in force the plaintiff is only entitled to deal directly with the 2nd defendant and not through other subsidiary and/or sister companies to the 2nd defendant hence the plaintiff’s allegation that the 2nd defendant has frustrated the plaintiff from engaging in business with other sister companies to the 2nd defendant is seeking enforcement of an ultra vires the terms of the dealership agreement. Further under the terms of the dealership agreement the logbooks are supposed to be under the name of the 2nd defendant until the full purchase price is paid hence there is no breach of contract as long as the full amount has not been remitted to the 2nd defendant regardless of the fact that the buyer has fully paid the dealer herein plaintiff.  The dealer must remit the entire purchase price before the transfer of logbook is facilitated.

23. In his oral evidence, the witness testified that the Plaintiff and the Defendant entered into a dealership agreement in October, 2018 in which the Plaintiff was to prospect for clients and the 2nd Defendant would supply the Plaintiff with the equipment which the 2nd Defendant was selling which were tippers, earthmoving machinery and excavators. According to the said agreement, the Plaintiff would pay a deposit and then settle the balance upon delivery. However, the payments by the clients would be made through the dealers. It was stated that the 2nd Defendant made supplies to the Plaintiff at a discounted price which the Plaintiff was supposed to pay and retain its profit margin.

24. Pursuant the said agreement, the 2nd Defendant did supply some equipment to the Plaintiff and initially the Plaintiff honoured the terms of the agreement till late 2019 when the 2nd Defendant realised that the agreement was nolonger being honoured. Consequently, the 2nd Defendant got in touch with the Plaintiff and after reconciling its accounts the 2nd Defendant realised that Kshs 14,263,335/- had not been remitted. Ata meeting held in January, 2020 the parties agreed on a payment plan which the Plaintiff reneged upon.

25. It was contended that on 7th July, 2020, this Court, as a condition for granting an order of injunction sought by the Plaintiff in this suit, directed the Plaintiff to deposit Kshs 9,081,085/- but which condition the Plaintiff never complied with.

26. The Defendants submitted, based on this court’s decision in Linus Nganga Kiongo & 3 others vs. Town Council of Kikuyu [2012] eKLR that the plaintiff (now the defendant) is liable for defaulting to pay the 2nd defendant the payments of the purchase consideration for the assets amounting to Kshs. 14,263,335. 00 hence the reason why they opted not to defend this claim since the issue of accountability is not disputable in the circumstances. The 2nd Defendant cited clause 5. 4(a), (b) and (c) of the dealership agreement dated 01/10/2018 between the plaintiff and the 2nd defendant, which laid basis on how the parties should carry on their business relationship by stating that:

“a party will charge interest on all overdue payments, at a monthly rate equal to the Libor 6 months interest rate as issued at the time the payment becomes due. If the overdue payments exceed more than three months, party A is entitled to take the following actions:

A. Repossess all products based on the overdue payment

B. Stopping supplying products to the distributor; or

C.Terminating this agreement and investigate its corresponding legal liability.”

27. Based on the foregoing, it was submitted that the 2nd defendant (now 2nd plaintiff) has a right to repossess on account of non-payments and since the dealer herein who is the plaintiff (now defendant) has acknowledged and signed a settlement agreement for the unremitted amount of Kshs. 14,263,335. 00. In addition, the 2nd defendant (now 2nd plaintiff) is entitled to resale to recover its unpaid balance as a result of breach of contract as parties to a contract are bound by its terms and the court cannot re-write a contract of the parties and reliance was placed on the case of National Bank of Kenya Ltd –vs- Pipe plastic Sanko Ltd & Another [2002] E.A 503.

28. It was asserted that the plaintiff (now defendant) breached its contractual obligations by failing to remit the payments paid to them by customers on behalf of the 2nd defendant (now plaintiff) on time and even failing to pay the accrued amount after acknowledging and committing themselves to an agreement dated 23/01/2020 to clear the amount owed.

29. According to the Defendants there is no doubt that there are two agreements between the plaintiff (now defendant) and the 2nd defendant (now plaintiff). There is the dealership agreement and the mutual agreement they entered into on 23rd day January 2020.  The 2nd defendant (now plaintiff) has suffered and continue to suffer substantial loss and the plaintiff is wholly to blame for the dispute herein and should be compelled to pay the outstanding debt amounting to Kshs.14,263,335/= owed to the 2nd defendant (now 2nd plaintiff) as the general principle of compensation in contract law is that subject to the doctrine of mitigation of loss, the claimant is to be put as far as possible in the same position as he would have been if the breach complained of had not occurred. The plaintiff (now defendant) have deliberately denied the 2nd defendant (now 2nd plaintiff) enjoyment of the court award as it was pronounced by this Honourable court through the ruling delivered on 7th July 2020 whereby the plaintiff (now defendant) was ordered to pay the 2nd defendant (now 2nd plaintiff) a sum of Kshs. 9,081,085/= and which amount is part of Kshs. 14,263,335. 00/= which amount is owed to the 2nd defendant (now plaintiff).

30. Accordingly, it was submitted that the defendants (now plaintiffs) are entitled to gains prevented by the breach, expenses caused by the breach and expenses rendered futile by the breach. In the instant case, the defendants (now plaintiff) have incurred loss of business, risk of being sued by third parties for breach of contract and also loss of market trust as the plaintiff has continued to frustrate the defendant’s clients by taking their money and failing to remit the money to the defendants for purposes of proceeding to register and transfer the machinery sold to the clients through the plaintiff’s (now defendant) company. Therefore, the above should be compensated as incidentals incurred by the defendants (now plaintiffs) as a result of the breach of the dealership agreement.

31. It was submitted that the defendants have provided sufficient evidence on a balance of probabilities to convince this court to enter judgment in favour of the defendants (plaintiffs herein) for a sum of Kshs. 14,263,335. 00 plus costs and interests of the counterclaim.

Determination

32.  I have considered the pleadings and the evidence on record. As outlined above, the Plaintiff herein did not adduce any evidence in support of its case. Accordingly, the 2nd Defendant’s case is undefended. In CMC Aviation Ltd. vs. Cruisair Ltd. (No. 1) [1978] KLR 103;[1976-80] 1 KLR 835, Madan, J (as he then was) expressed himself as hereunder:

“Pleadings contain the averments of the parties concerned. Until they are proved or disproved, or there is an admission of them or any of them, by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. Evidence denotes the means by which an alleged matter of fact, the truth of which is submitted for investigation. Until their truth has been established or otherwise, they remain un-proven. Averments in no way satisfy, for example, the definition of “evidence” as anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.”

33. What are the consequences of a party failing to adduce evidence? In the case of Motex Knitwear Limited vs. Gopitex Knitwear Mills Limited Nairobi (Milimani) HCCC No. 834 of 2002, Lesiit, J citing the case of Autar Singh Bahra and Another vs. Raju Govindji, HCCC No. 548 of 1998 appreciated that:

“Although the Defendant has denied liability in an amended Defence and counterclaim, no witness was called to give evidence on his behalf. That means that not only does the defence rendered by the 1st plaintiff’s case stand unchallenged but also that the claims made by the Defendant in his Defence and Counter-claim are unsubstantiated. In the circumstances, the Counter-claim must fail.”

34. Again in the case of Trust Bank Limited vs. Paramount Universal Bank Limited & 2 Others Nairobi (Milimani) HCCS No. 1243 of 2001 the learned judge citing the same decision stated that it is trite that where a party fails to call evidence in support of its case, that party’s pleadings remain mere statements of fact since in so doing the party fails to substantiate its pleadings. In the same vein the failure to adduce any evidence means that the evidence adduced by the 2nd Defendant against the Plaintiff is uncontroverted and therefore unchallenged.

35. In the case of Karuru Munyororo vs. Joseph Ndumia Murage & Another Nyeri HCCC No. 95 of 1988, Makhandia, J (as he then was) held that:

“The plaintiff proved on a balance of probability that she was entitled to the orders sought in the plaint and in the absence of the defendants and or their counsel to cross-examine her on the evidence, the plaintiff’s evidence remained unchallenged and uncontroverted. It was thus credible and it is the kind of evidence that a court of law should be able to act upon.”

36. InJanet Kaphiphe Ouma & Another vs. Marie Stopes International (Kenya) Kisumu HCCC No. 68 of 2007 Ali-Aroni, J.citing the decision inEdward Muriga Through Stanley Muriga vs. Nathaniel D. Schulter Civil Appeal No. 23 of 1997held that:

“In this matter, apart from filing its statement of defence the defendant did not adduce any evidence in support of assertions made therein. The evidence of the 1st plaintiff and that of the witness remain uncontroverted and the statement in the defence therefore remains mere allegations…Sections 107 and 108 of the Evidence Act are clear that he who asserts or pleads must support the same by way of evidence”.

37. Similarly, in the case of Interchemie EA Limited vs. Nakuru Veterinary Centre Limited Nairobi (Milimani) HCCC No. 165B of 2000, Mbaluto, J.held that where no witness is called on behalf of the defendant, the evidence tendered on behalf of the plaintiff stands uncontroverted.

38. If one is still in doubt as to the legal position reference could be made to the case of Drappery Empire vs. The Attorney General Nairobi HCCC No. 2666 of 1996 where Rawal, J (as she then was) held that where the circumstances leading to the deliveries of goods are not challenged and stand uncontroverted due to the failure by the defendant to adduce evidence, the standard of proof in civil cases (on the balance of probabilities) has been attained by the plaintiff.

39. In this case the 2nd Defendant’s witness testified on oath supported by documentary evidence which go to prove its case. Apart from the evidence, by an agreement dated 23rd January, 2020 between the Plaintiff and the 2nd Defendant titled “Mutual Termination Agreement” it is indicated that the Plaintiff acknowledged default in payments of the purchase consideration for the assets amounting to Kshs 14,263,335. 00. This agreement has not been denied. The said agreement amounts to an express admission of liability by the Plaintiff and even if nothing else was to be considered, the same is sufficient to prove the claim by the 2nd Defendant against the Plaintiff.

40. Accordingly, in the absence of any evidence to the contrary and as proof in civil cases is on a balance of probabilities, I find that there was indeed an agreement between the plaintiff and the defendant for the supply by the 2nd Defendant to the Plaintiff of the said equipment on the said agreed terms which agreement the Plaintiff breached.

41. It is clear from the evidence on record that the Plaintiff owes the 2nd Defendant a sum of Kshs 14,263,335. 00 which sum remains unpaid.

42. As regards general damages, in Kenya Breweries Ltd. vs. Kiambu General Transport Agency Ltd. Civil Appeal No. 9 OF 2000 [2000] 2 EA 398, it was held by the Court of Appeal that no general damages can lie for a breach of contract. The same Court in Kenya Commercial Bank Limited vs. Charles Otiso Otundo Civil Appeal No. 198 of 2000 held while citing Dharamshi vs. Karsan [1974] EA 41, that there can be no general damages for breach of contract, in addition to, for example loss of profits.

43. Having considered the material presented before me I find that the 2nd Defendant has proved its case against the Plaintiff on the counterclaim on a balance of probabilities. Accordingly, I enter judgement for the 2nd Defendant against the Plaintiff in the sum of Kshs 14,263,335. 00 with interest at Court rates from 2nd June, 2020 till payment in full.

44. The Defendants will also have the costs of this suit.

45. Judgement accordingly.

JUDGEMENT READ, SIGNED AND DELIVERED IN OPEN COURT AT MACHAKOS THIS 9TH DAY OF MARCH, 2022

G V ODUNGA

JUDGE

Delivered the presence of:

Mr Kitindio Musembi for the Defendants

CA Susan